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Managerial Accountability for Payroll Expense and Firm-Size Wage Effects


Zubrickas, Robertas (2011). Managerial Accountability for Payroll Expense and Firm-Size Wage Effects. Working paper series / Institute for Empirical Research in Economics No. 474, University of Zurich.

Abstract

We argue that job performance appraisal is an agency problem with asymmetric transfer values: an employee is paid in proportion to the rating received from his line manager, who only partially internalizes the resultant payroll cost. This asymmetry in rating valuations is based on evidence that managers are not fully accountable for payroll expense, with the degree of unaccountability increasing in firm size. We develop a nested agency model of economic organization of a firm with unaccountable managers, which in equilibrium obtains the firm-size wage effects - the large-firm wage premium and inverse relationship between firm size and wage dispersion.

Abstract

We argue that job performance appraisal is an agency problem with asymmetric transfer values: an employee is paid in proportion to the rating received from his line manager, who only partially internalizes the resultant payroll cost. This asymmetry in rating valuations is based on evidence that managers are not fully accountable for payroll expense, with the degree of unaccountability increasing in firm size. We develop a nested agency model of economic organization of a firm with unaccountable managers, which in equilibrium obtains the firm-size wage effects - the large-firm wage premium and inverse relationship between firm size and wage dispersion.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
JEL Classification:J30, D21, M52
Language:English
Date:March 2011
Deposited On:25 Nov 2011 10:13
Last Modified:12 Aug 2017 12:31
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Additional Information:Revised version
Official URL:http://www.econ.uzh.ch/wp.html

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